lndn2nbca

I've gotten the sense that KPMG can over complicate things.

For the 2010 tax year I did not meet the Substantial Presence Test (183 days). I didn't know it existed when I filed my 2010 US returns through H&R block, the advisor seemed to know less than I did, nevertheless we got it done, and I got a reasonable rebate.

My company has now 'engaged' KPMG for my 2011 returns, but they also want to go through my 2010 returns and re-file if necessary. I'm not convinced it's a good idea.
On the plus side, as I didn't meet the Substantial presence test, I could be entitled to another refund (though I'm sceptical), on the down side it was nice and simple, I filed as though I were an American drawing a local salary and nothing else. I don't want to have KPMG to complicate it and have to repay some of what I was refunded.

I'm probably not going to know whether I'll be up, down or net until I let KPMG at my 2010 returns, but does anyone have any 'feelings' over whether its likely to be a good idea or a bad idea? I do have the option of declining their assistance.

theOAP

KPMG are a reputable, if somewhat pricey, firm. Consider the fact that it's quite normal for a new preparer to request a review of a previous years tax return, if prepared by someone else. KPMG would be responsible for the accurate filing of your 2011 return, and an inaccurate 2010 return could effect the accuracy of the 2011 return. If KPMG are aware there is a problem, and carry on as if there were no mistake, they would also be responsible for a false filing. You may find that if you refuse KPMG to file a corrected 1040X for 2010, they may (rightly) refuse to do the 2011 return.

It's always a nice warm feeling when you find you may have put something over on the IRS, but the IRS get an ever nicer and warmer feeling when they charge you penalties and interest for fraud. When you sign a tax return, you are swearing that it is accurate, to the best of your knowledge. Do you wish to do this on your 2011 return if you know it is possibly inaccurate due to the 2010 return?. The costs associated with re-filing the 2010 return may be insignificant to the cost of the penalties and interest if the 'error' is discovered in 2 years time.

If you want to file a 2011 return and it is inaccurate due to the error on your 2010 return, you may struggle to find anyone willing to take the risk.

Some tax preparers charge a significantly higher rate to prepare returns. All tax preparers may make mistakes (given the state of the US tax code, it's almost impossible not to). They get into big problems if they knowingly allow them to be perpetuated.

Michael

There is no simple answer. If you file as a resident, you get more deductions, exemptions, and tax credits but you have to pay tax on worldwide income which likely pushes you into a higher marginal tax bracket. However, if the foreign taxes paid on the foreign income is large enough to completely offset any taxes on that foreign income or if you had very little foreign income, you will likely end up with a fairly low tax for that year (less than the amount withheld if you filled out the W-4 without considering the write off) and that is why you likely got a refund.

On the other hand, if you are from a low tax country, filing as a non resident would likely be more beneficial since you would likely have little foreign taxes paid to offset the US taxes that may be owed on that income.

If H&R Block filled out the form correctly, it probably won't hurt to have KPMG calculate both ways since your company is paying for their service. But sometimes it is better to "let a sleeping dog lie" in case H&R Block filled it out wrong.

lndn2nbca

Thanks for that, seems very reasonable.

Do you have an opinion the Substantial Presence Test and how it might apply to me?

Regarding KPMG specifically, heresay has it that having your taxes done by them increases your chances of additional scrutiny as they tend to deal more with complex situations and people who earn huge amounts of money (neither apply to me).
They have been engaged by the parent company of my company to deal with us awkward people who switch countries.

lndn2nbca

Interesting on the differences between filing as resident versus non resident. I filed as resident (despite having been in the country less than 183 days), and my foreign income (apart from the PAYE paid on my salary) won't be taxable as it will be offset by expenses.

So if I filed as non resident, would I be taxed at the same rate but not entitled to any deductions? is it that straight cut (something tells me not where tax is concerned )?

Michael

It is not quite that simple and that is why someone that understands the tax code likes to calculate it both ways to see which way is best. I believe the tax tables are the same but you may possibly not get the same exemptions when filing as a non resident so that could possibly create a larger taxable income.

theOAP

I've unfairly shortened your quote, but I don't think you'll get 2 more reasonably balanced opinions from 2 non-professionals (and please Michael, correct me if I'm mistaken on that) than those above. In his informative post, Michael has made a valid point: it really comes down to the accuracy of the 2010 return, and if it isn't accurate, will there be additional tax due. If no additional tax is due, or if it is accurate, what do you have to lose? When engaging KPMG, they agree to mitigate any problems with the IRS if they have been supplied with full and correct information.

Each individual return is different. It would be unfair to comment as if we knew your exact situation. I'm afraid this is something you'll need to read up on, and work out yourself.

nun

If your company is paying KPMG to do your taxes that's great! Let them do their job, but stay involved and make sure you get copies of everything and understand everything that is done. Looking back over past years returns will be necessary to get this right. FYI I assume you are working in the UK as you mention PAYE so what seem to be simple of situations can have complications. Examples might be paying into a UK based pension scheme, investing in UK based mutual funds, buying a UK property and having amounts over $10k or $50k in UK investments.